I remember hearing long ago there was two types of debt: so-called “Good Debt”, and its counterpart “Bad Debt”. At the time no one took the liberty to explain the differences and it all got lost behind the drink-fuelled excesses of my student days.

Now I’m a (semi) responsible adult, paying for all the past debauchery, I finally know the difference between the two. I’ll simplify things a fair bit, but Good Debt and Bad Debt can be looked at like this:

Good Debt

Good Debt is debt incurred for something that increases in value as time goes by. The best example of this would be a mortgage. Good Debt is (unsurprisingly) a good thing. By the time you’ve repaid the debt, your investment is worth more than what you paid for it.

Bad Debt

Bad Debt is debt for items that decrease in value. This typically includes personal loans such as for a car, or nearly anything bought on a credit card. Avoiding Bad Debt where possible is key to obtaining financial independence.

I realise I’m generalizing and there’s probably more to it then my simplified explanation, but it’s more of an explanation than I ever got… If at least one person is able to avoid getting into a tight spot because of it, I’ll be quite happy.